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View Diary: Thoughts on the Enron decision from an ex-Andersen guy (240 comments)

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  •  To Be Fair (14+ / 0-)

    You say you

    asked ourselves (and our colleagues) why none of the brokerage houses that fraudulently pumped up the stock of Enron weren't taken down.  I mean, to those who lost their life savings from this - Enron employees, other investors, or anyone else - they relied on the stock information that the analysts fraudulently provided.

    Well, the investment banks and brokerage houses have been taken down, at least on the civil litigation front.  Just yesterday, in fact, a federal district court judge gave final approval to an additional $6.6 billion in settlements from three banks.

    The settlements to be paid to former Enron shareholders include $2.4 billion from Canadian Imperial Bank of Commerce, $2.2 billion from JPMorgan Chase & Co. and $2 billion from Citigroup Inc.

    Including earlier settlements with firms such as Lehman Bros. Holdings Inc. and Bank of America Corp., shareholders are now due to receive more than $7.2 billion of the $40 billion that plaintiffs in the cases have claimed they lost in Enron's collapse.

    There are still several heavy hitters which have yet to settle, including Merrill Lynch and Credit Suisse First Boston.  Thus, the total could easily top $10 billion when all is said and done.  Will this make people whole again?  Certainly not.  But it's a major step.

    And without getting into specifics regarding Andersen's potential culpability, its bankruptcy and liquidation in light of the (overturned) criminal conviction kept it from being on the hook for billions in liability (see also Worldcom).  I'm not trying to vilify Andersen, but there should be no claim that its hands were clean in all this.  Everyone had a role to play, and a whole lot of folks got screwed over as a result.  That's why, if anything, we need more regulation of companies (building on top of Sarbanes-Oxley, if you will), not less.

      •  Kinda, Sorta the Point (5+ / 0-)

        Without casting too many aspersions against Andersen, the company was facing such extreme civil liability exposure from shareholder litigation in Enron, Worldcom, etc. that it quite possibly would have gone under as a result of those settlements.  You'd presumably know this better than I would, but I'd have to think that Andersen would have had a very hard time surviving anywhere from $6-$20+ billion in settlements/judgments against it.  Since the investment banks and brokerages have broader capital pools from which to draw, they're in a better position to survive it all in the series of cases that came out of the various corporate collapses 5-6 years ago.

        There's also the greater concentration of liability that would weigh on Andersen's shoulders:  Andersen was typically the sole accounting and auditing firm for any given company (it doesn't really work any other way, as I'm sure you know), whereas there were usually half a dozen major banks -- and close to twenty lesser ones -- involved on the financing end of things, thus spreading their liability rather thinner.

        But the key, here, is that they are paying significant sums in order to stay in business.  Since these are settlements before trial (both with regard to Enron and Worldcom, for example), these are amounts well below what the banks felt they might well have to pay if they had taken their chances in front of a judge and jury.

    •  That's about, what, 19% of what was lost? (2+ / 0-)
      Recommended by:
      clammyc, lookingglass

      I suppose it's better than nothing... are there more suits still pending, by chance?

      Ignorance killed the cat. Curiousity was framed.

      by Lashe on Thu May 25, 2006 at 11:38:59 AM PDT

      [ Parent ]

      •  You Betcha (2+ / 0-)
        Recommended by:
        clammyc, MarketTrustee

        It's actually the same suits that are merely continuing against the non-settling defendants, such as Merrill Lynch and Credit Suisse First Boston.  The principal actions are Newby v. Enron (Civil Action No. H-01-3624, S.D. Tex.) and In re Enron Securities Litigation (MDL 1446).  For most purposes, all the lawsuits are consolidated (there are about 55 others, by my rough count).  Essentially, every major investment bank or brokerage house was named as a defendant most of these actions.  So by the time all is said and done, I'd be very surprised if the total settlement amount wasn't well on the high side of $10 billion.  Considering what usually happens in securities fraud litigation involving a now bankrupt entity that no longer exists, that's a fairly decent return (as opposed to mere pennies on the dollar).

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